So you finally found your dream home and made an offer that was accepted. Congrats! You’re super excited to start packing up and picking out furniture. But then you notice the house is still listed as “under contract” online. Um, wait – can the seller now turn around and sell to someone else instead? What exactly does it mean when a house is under contract anyway? And what recourse do you have if the seller gets cold feet? Let’s break it down.
What Does “Under Contract” Actually Mean?
When you see a home is under contract, it means an offer has been made and the seller has accepted. There is now a legally binding agreement between the buyer (you!) and seller. Both parties take on contractual obligations that must be fulfilled – more on that later.
Once under contract, the home usually switches to a “pending” status on real estate sites. This signals to other buyers that the property will soon be off the market. But it’s not quite sold yet – that comes after closing. So for now, pending indicates the home is under contract and in the process of sale.
Is a Real Estate Contract Truly Legally Binding?
Now when we say a real estate contract is “legally binding” – what does that actually entail? For a contract to be valid and enforceable, a few key elements must be present:
- Offer – One party (you, the eager buyer!) proposes terms like price, closing date, etc.
- Acceptance – The other party (the seller) agrees to those proposed terms.
- Consideration – Valuable compensation exchanged as part of the agreement. For real estate, this is usually earnest money you pay after an offer is accepted.
- Legal capacity – Both parties demonstrate they understand the contract and its implications.
In California and some other states, consideration must pass hands for the contract to become fully binding. This “value exchange” requirement is why you hand over earnest money. It turns a verbal agreement into a lawful contract.
Once consideration changes hands and both parties accept the offer, you’re locked in. The contract is now legally enforceable and both sides must hold up their end of the bargain.
When Can a Seller Back Out of a Contract?
Now the question you’re probably wondering – once under contract, can the seller change their mind and sell to someone else instead? Generally no. The contract is legally binding, so the seller can’t just withdraw and scrap your deal if they get a better offer later on. If they did, you could take them to court for breach of contract.
But, and this is key – it depends on the contingencies and clauses written into the purchase agreement. These provide an “out” for both buyers and sellers in certain circumstances. Some common contingencies include:
- Financing contingency – The buyer can back out if they fail to secure a mortgage.
- Inspection contingency – The buyer can cancel based on an unsatisfactory inspection report.
- Appraisal contingency – The buyer can walk if the appraisal comes under the purchase price.
- Home sale contingency – The buyer can withdraw if their current home doesn’t sell first.
So if as the buyer you can’t remove contingencies like financing approval, low appraisal, or failed inspections in the timeframe allotted, this may free the seller from the contract.
In California, before withdrawing the seller must first deliver the buyer a Notice to Perform, giving them a last chance to meet the contract terms. But if the buyer still can’t perform, the seller regains their right to walk away and sell to someone else instead.
What Remedies Does a Buyer Have if the Seller Backs Out?
Okay, but what if the seller withdraws from the contract for no valid reason? You have a few options as the buyer:
- Release the seller willingly – If you’re feeling gracious or the seller has extenuating circumstances, you can let them out of the contract without consequence.
- Sue for specific performance – You can seek a court order to force the sale and compel the seller to transfer the home to you.
- Seek monetary compensation – Sue for actual financial damages the seller’s breach caused you.
- Pursue both – You can ask for specific performance plus monetary damages in some cases.
So if the seller breaches the contract with no contractual basis, be prepared to lawyer up. You can pursue legal remedies to either make them follow through on the sale or recover your losses.
Can the Seller Continue Accepting Offers?
Here’s a head-scratcher. When a home is pending or under contract, can the seller still entertain other offers just in case your deal falls through?
The answer is yes. It’s fairly common for sellers to continue accepting backup offers even while under contract. This provides a safety net for the seller if something goes wrong with your original agreement.
But – and this is critical – the seller cannot actually accept one of those new offers and sell to another buyer instead of you while your deal is still valid. Your contract remains binding, so you maintain priority. The seller must honor your existing agreement unless you default or fail to meet contractual contingencies.
When Can the Seller Accept a New Offer Instead?
Now when can the seller accept one of those backup offers and sell to someone new? Here are some examples:
- Your financing contingency falls through, and you can’t secure a mortgage commitment.
- The inspection uncovers major issues you want repaired, but the seller refuses.
- The appraisal comes back much lower than the purchase price, and you won’t renegotiate.
- You miss deadlines written into the contract for securing financing, removing contingencies, etc.
Essentially if you default on the contract in a valid way, this frees the seller to move on. After proper notice to you per state laws, they can then accept the next best offer and proceed with that buyer instead.
In many cases, the seller will go with whichever backup offer is strongest – highest price, least contingencies, fastest close. So as a backup buyer, it pays to make an attractive offer in hopes of swooping in if the current deal craters.
Often when the original contract dissolves, the first credible backup buyer still on the hook has the advantage. The seller is motivated to just get the home sold quickly at that point. So backups need patience but also readiness to pounce!
Key Takeaways on Houses Under Contract
- Under contract means the seller must sell the home to you at this point. They can’t simply accept another offer later if a better one comes along.
- But it depends…contingencies protect both the buyer and seller in case issues arise before closing.
- If the seller unlawfully breaches contract, you can sue to force the sale or recover damages.
- The seller can (and should) continue gathering backup offers in case your deal happens to fall through.
- But the seller generally must honor the original contract as long as you hold up your contractual obligations as the buyer.
You’re Under Contract – Now Relax and Focus on Closing!
So in most cases, being under contract substantially restricts the seller’s ability to consider other offers. Their home is essentially sold to you once you have a binding purchase agreement. There are limited scenarios where they can lawfully back out if you default as the buyer. Likewise, you can withdraw only under certain contingency clauses.
The key is understanding the terms of your specific contract and the proper process to follow on both sides. With a solid grasp of your rights and obligations as the buyer, you can relax knowing the seller can’t easily weasel out of your deal! Now focus on getting to closing day. The moving trucks will be there before you know it!